Roubini - " Defconomy 5 - 4 - 3 - 2 - 1 - B O O M ! "

[Sheer Heart Attack]

Glenn Beck: Don't follow herd on the economy

Glenn Beck

CNN.com

"The people who survived the Great Depression were the ones who had money to buy when everybody else was selling." -- My grandfather

A few years back, I was taking a theology course and the professor recommended only the books whose authors he agreed with. I read those books, but I also asked that professor which books he thought had it completely wrong -- and I read those too. Then I made up my own mind. After all, following the herd is fine until they all run off the side of a cliff together.

Less than a year ago, a recession was the last thing on anyone's mind...That's when I realized how fast the herd was approaching the cliff.

...So to understand what a real meltdown could look like, I turned to Nouriel Roubini, chairman of RGE Monitor and professor of economics at New York University's Stern School of Business. He's also a former adviser to the U.S. Treasury Department.

Professor Roubini recently laid out what he called the "12 steps to financial disaster." Unfortunately, they were really complicated, and I have severe ADD, so I've boiled them down into five phases that even a rodeo clown like me can understand.

I think of these like our military's "DEFCON" -- or defense readiness condition -- scale, except that this countdown could end in the meltdown of your bank account:

• DEFCONOMY FIVE

How you'll know we're here: The housing downturn turns into a free fall, making it the worst collapse in our country's history. That not only triggers massive numbers of foreclosures and lost household wealth, but it also sets off another large wave of bank write-downs.

Odds we get here: Roubini told me that it's "extremely likely, even unavoidable" that we hit this stage because "the excess supply of new homes in the market is like we've never seen before." Prices, he believes, "need to fall another 10 to 20 percent before that clears."

• DEFCONOMY FOUR

How you'll know we're here: Americans upside-down on their mortgages and unable to pay their home equity loans begin defaulting on other debt, like credit cards, car loans and student loans. In addition, bond insurance companies lose their perfect credit ratings, forcing already troubled banks to write down another $150 billion.

Odds we get here: High. Roubini says that 8 million households are already upside-down on their mortgages and he thinks we could see that number go to between 16 million and 24 million by the end of 2009. A lot of those people, he believes, will simply walk away from their homes and send their keys back to the bank.

• DEFCONOMY THREE

How you'll know we're here: Some banks begin to crack under the pressure of continuing write-downs and mounting defaults by consumers. A national or large regional bank finally collapses, triggering hedge fund failures and general chaos on Wall Street, potentially leading to a 1987-style market crash.

Odds we get here: Very good. Roubini says that we'll likely socialize the losses, "effectively nationalizing the mortgages or the banks." It would be, he told me, "like Northern Rock (the large bank in England that was recently taken over by the British government) times three." He thinks the stock market will head south throughout the year as fears about a severe recession are confirmed.

• DEFCONOMY TWO

How you'll know we're here: Most forms of credit (both to consumers and businesses) become virtually nonexistent. That results in a "vicious circle" of additional write-downs, stock market losses, and bank collapses, which leads to even less credit being available.

Odds we get here: Good. Roubini says that credit conditions are becoming worse everyday across a variety of markets and won't be getting better anytime soon. Without extra credit available, people might have to actually (gasp!) live within their means.

• DEFCONOMY ONE

How you'll know we're here: Welcome back to 1929. A full economic meltdown results in a complete failure of the underlying financial system. What will be known to future generations as "The Greater Depression" has arrived.

Odds we get here: Not likely. Roubini believes that this will be a "very painful and severe recession" that could last for 18 months or more, but it will be more like 1981 than 1929. Families may be eating soup again, but at least it'll be in their own kitchens.

I'm not trying to be the new cgnao, but I did find this a very interesting article.

Roubini thinks we are heading for extreme turmoil and the near collapse of the credit market. However, not enough to take us into a new Depression and not lasting years - just around a year and a half.

I think we are getting closer to a "prediction" - the shit hits the fan around September 08 and may last right through until Spring/Summer 2010.

[we the sheeple]

Uber bearish doom-mongering one week becomes accepted wisdom the next.

[beefheart]

the US is toast

http://money.cnn.com/video/#/video/news/20....Feb28.cnnmoney

[Ah-so]

Nice idea - perhaps this website can have its own "Defcon" warning system on the front page and we could argue endlessly about what level we are at. Using the military standard of 5 being peace and 1 war, we are probably just on the verge of Defcon 3 (9/11 resulted in Defcon 3).

BTW, who did that Defcon 1 song years ago, with the chorus "Big Mac, fries to go..."?

[Havoc]

I read all about those 12 steps to disaster a while ago, but couldn't make any sense of them either.

Thanks for summarising.

[Ah-so]

BTW, who did that Defcon 1 song years ago, with the chorus "Big Mac, fries to go..."?

Can answer my own question - Pop Will Eat Itself back in the early 90s.

[Leonard Hatred]

Can answer my own question - Pop Will Eat Itself back in the early 90s.

That was the first thing I thought of when I saw the thread title!

[Crashman Begins]

Where would you guys say we are.

Looks like were on four heading to 3

[Havoc]

Where would you guys say we are.

Looks like were on four heading to 3

We are still at 5.

heavy falls have not started yet.

Edited March 8, 2008 by Havoc

[dances with sheeple]

Isn`t thinking it will only last 18 months just wishful thinking? If there really is "systemic failure" in the banking system you can`t go back to using that system once the dust settles can you? Shouldn`t we just get used to the idea that things can`t continue the same way as they are now?

[council dweller]

Isn`t thinking it will only last 18 months just wishful thinking? If there really is "systemic failure" in the banking system you can`t go back to using that system once the dust settles can you? Shouldn`t we just get used to the idea that things can`t continue the same way as they are now?

18 years innit....

[dances with sheeple]

18 years innit....

I would have thought a downturn lasting a few years but with likely very great and lasting changes to the way that sheeple access funds?

[Crashman Begins]

We are still at 5.

heavy falls have not started yet.

UK 5

US 3 / 4 ?

[bobthe~]

UK 5

US 3 / 4 ?

I think from re-reading it, Roubini says the US hasn't reached 5 yet, but that further falls of 10-20% will put them there.

We haven't really started to register the drops yet. Still, YoY in the Halifax figures may only be 2 months away. Maybe from our point of view Defcon 5 is YoY -ve on one of the Haliwide indicators?

[oracle]

UK 5

US 3 / 4 ?

UK 5#??

we just had a northern rock made public,surely we are really at DEFCON 3.

Don't panic captain mainwairing,it's all under control.We've had a small scale exchange of fisconuclear ordnance,but the casualties are limited because the government have lent them all umbrellas to cower under.

.....well the BBC said it's ok,so I guess we are all safe from the fallout,aren't we??

[Nelly]

[

I'm not trying to be the new cgnao,

You dont wanna be neither................ the old one was a bit of dik tbh

[Hard-up]

the US is toast

http://money.cnn.com/video/#/video/news/20....Feb28.cnnmoney

If they're toast then we'll be the burnt crust.

[DoctorJ]

the US is toast

http://money.cnn.com/video/#/video/news/20....Feb28.cnnmoney

Scary. This guy is predicting a depression. Defcon 1

For liquidity, cash is king. Be vigilant.

[Crashman Begins]

UK 5#??

we just had a northern rock made public,surely we are really at DEFCON 3.

Thats what I originally thought before changing my mind

I guess we have a lil bit of a mixed defcon situation here

Edited March 8, 2008 by Crashman Begins

[Guest grumpy-old-man]

this is my kind of post Pacific State.

I have been expecting a depression since I was pointed in the right direction by a few of the more knowledgable posters on this site.

Since early 2007, I just don't understand how many more people just can't see the dire situation that we are in, both globally & locally (especially locally, the UK is fooked, really fooked). I have however, noticed a change in sentiment of late on this site, I sense a fair few more posters are now starting to understand the reality of this situation, but I do understand why they originally thought that it wasn't really that bad, because the stats paint the picture much rosier than it really is. Once you see through this all becomes clear. The fudged stats that the BoE & ONS have been putting out for the last few years, have been distorting the real picture of both hpi & inflation.

Take a good luck around you, look at the amount of city & town centre shops closing down, the repo stats (possibly still fudged & not showing those 'sell quick type company' deals, so it doesn't show as a repo, just a vastly reduced sale, then the tenant can't get their lease renewed) Companies are running clever downsizing programs, replacing permanent staff with contractors, this has the effect of making everything look healthy until the time comes for the chop, then it will be extremly swift & brutal with no comeback for the company & they don't have to pay the severance pay either.

I think the main problem is that the majority on this site, are reasonably well off with decent jobs, and are surrounded by the same people both at home & at work, so don't see the real picture in the UK.

I don't mean this to sound patronising at all, it's just a fact imo.

Edited March 8, 2008 by grumpy-old-man

[huw]

Thats what I originally thought before changing my mind

I guess we have a lil bit of a mixed defcon situation here

defconfused

[whoami]

Roubini's points are not necessarily serial events (like a countdown).

Many of them overlap, persist and interact - which is probably why there's some disagreement here about which stage in the process we've reached.

[stormymonday_2011]

I think we are getting closer to a "prediction" - the shit hits the fan around September 08 and may last right through until Spring/Summer 2010.

This is pretty much my timeline for the melt down too except I do not expect the wheels to come off completely until after the US Presidential elections in November.

[Guest Mr Parry]

Glenn Beck: Don't follow herd on the economy

Glenn Beck

CNN.com

"The people who survived the Great Depression were the ones who had money to buy when everybody else was selling." -- My grandfather

A few years back, I was taking a theology course and the professor recommended only the books whose authors he agreed with. I read those books, but I also asked that professor which books he thought had it completely wrong -- and I read those too. Then I made up my own mind. After all, following the herd is fine until they all run off the side of a cliff together.

Less than a year ago, a recession was the last thing on anyone's mind...That's when I realized how fast the herd was approaching the cliff.

...So to understand what a real meltdown could look like, I turned to Nouriel Roubini, chairman of RGE Monitor and professor of economics at New York University's Stern School of Business. He's also a former adviser to the U.S. Treasury Department.

Professor Roubini recently laid out what he called the "12 steps to financial disaster." Unfortunately, they were really complicated, and I have severe ADD, so I've boiled them down into five phases that even a rodeo clown like me can understand.

I think of these like our military's "DEFCON" -- or defense readiness condition -- scale, except that this countdown could end in the meltdown of your bank account:

• DEFCONOMY FIVE

How you'll know we're here: The housing downturn turns into a free fall, making it the worst collapse in our country's history. That not only triggers massive numbers of foreclosures and lost household wealth, but it also sets off another large wave of bank write-downs.

Odds we get here: Roubini told me that it's "extremely likely, even unavoidable" that we hit this stage because "the excess supply of new homes in the market is like we've never seen before." Prices, he believes, "need to fall another 10 to 20 percent before that clears."

• DEFCONOMY FOUR

How you'll know we're here: Americans upside-down on their mortgages and unable to pay their home equity loans begin defaulting on other debt, like credit cards, car loans and student loans. In addition, bond insurance companies lose their perfect credit ratings, forcing already troubled banks to write down another $150 billion.

Odds we get here: High. Roubini says that 8 million households are already upside-down on their mortgages and he thinks we could see that number go to between 16 million and 24 million by the end of 2009. A lot of those people, he believes, will simply walk away from their homes and send their keys back to the bank.

• DEFCONOMY THREE

How you'll know we're here: Some banks begin to crack under the pressure of continuing write-downs and mounting defaults by consumers. A national or large regional bank finally collapses, triggering hedge fund failures and general chaos on Wall Street, potentially leading to a 1987-style market crash.

Odds we get here: Very good. Roubini says that we'll likely socialize the losses, "effectively nationalizing the mortgages or the banks." It would be, he told me, "like Northern Rock (the large bank in England that was recently taken over by the British government) times three." He thinks the stock market will head south throughout the year as fears about a severe recession are confirmed.

• DEFCONOMY TWO

How you'll know we're here: Most forms of credit (both to consumers and businesses) become virtually nonexistent. That results in a "vicious circle" of additional write-downs, stock market losses, and bank collapses, which leads to even less credit being available.

Odds we get here: Good. Roubini says that credit conditions are becoming worse everyday across a variety of markets and won't be getting better anytime soon. Without extra credit available, people might have to actually (gasp!) live within their means.

• DEFCONOMY ONE

How you'll know we're here: Welcome back to 1929. A full economic meltdown results in a complete failure of the underlying financial system. What will be known to future generations as "The Greater Depression" has arrived.

Odds we get here: Not likely. Roubini believes that this will be a "very painful and severe recession" that could last for 18 months or more, but it will be more like 1981 than 1929. Families may be eating soup again, but at least it'll be in their own kitchens.

I'm not trying to be the new cgnao, but I did find this a very interesting article.

Roubini thinks we are heading for extreme turmoil and the near collapse of the credit market. However, not enough to take us into a new Depression and not lasting years - just around a year and a half.

I think we are getting closer to a "prediction" - the shit hits the fan around September 08 and may last right through until Spring/Summer 2010.

If the probability of DEFECONOMY 2 is "GOOD", then DEFECONOMY 1 is a "SURE THING", no?

Edited March 9, 2008 by Mr Parry

[Vespasian]

Whatever happens, it should trigger a new wave of good music. Goodbye to X-factor and all that crap!